SEBI gets on Alchemist firm case

Two years after it first received an ‘anonymous’ complaint, the Securities and Exchange Board of India (SEBI) has directed Alchemist Infra Realty (AIR) to immediately wind up its money-collection scheme and refund all its depositors within three months. The company, owned by Trinamool Rajya Sabha MP KD Singh, had raised only Rs 449 crore when complaints first started coming in in 2010. The amount has since gone up to a whopping Rs 1,907 crore (until March 2012).

SEBI’s investigations have found that AIR was virtually being run like a Collective Investment Scheme (CIS) albeit without the mandatory approval of the regulator. AIR had stated it was a real estate company which was only involved in selling and developing land. This was found to be false in the course of the probe. The regulator found that “certificates of property” that were being doled out to depositors were actually “certificates of investment” since the company was soliciting Rs 1,000 as minimum investment which could go up in multiples of Rs 100 for immoveable property that could be leased out to the company under “fixed term tenancy agreement”. The company had also made it mandatory for the applicants to sign pre-printed power of attorney documents, many of them in favour of a person named Gagnish Arora, a certified representative of the company. Earlier, a Registrar of Companies probe had found that the company had no land at the said spot in Madhya Pradesh.

Many in West Bengal believe that only a CBI inquiry can unravel the truth about the dealings of the company

SEBI has made scathing observations on the conduct of the company which made it conclude that it was running a CIS. It found that the company was collecting as much as 75 per cent of the amount as development fee which was mandatory for the depositor. Also, the order notes that the company was promising a share in undivided land with the depositor being told he could request it to extend the tenure or to find a suitable purchaser.

This is the second major crackdown — after the collapse of the Saradha group — on the Ponzi schemes being run by entities close to West Bengal Chief Minister Mamata Banerjee.

Earlier, in its June issue, Hardnews had reported how different departments and institutions of the government, including the Reserve Bank of India, the Ministry of Corporate Affairs, and the Registrar of Companies (ROC) were sitting on complaints and RTI requests, some dating back to 2010, pertaining to financial impropriety. The probe by the ROC which began in 2012 found grave discrepancies in the working of three companies — AIR, Alchemist Capital and Alchemist Holdings — belonging to the Alchemist group. Not only was there a grave mismatch between the assets of the company and the deposits collected, and the issue of allotment of preference shares without the prior approval of SEBI, a humungous amount was also siphoned off as short-term advance. The beneficiaries of this have not been disclosed despite several reminders by the ROC.

Alchemist Infra Realty had collected Rs 1,932.91 crore as of March 2012, of which Rs 1,190 crore was given as short-term advance to undisclosed entities. The company had assets worth just Rs 43 crore in 2011 which had gone up to Rs 242 crore in 2012 when the probe began. Alchemist Capital and Alchemist Holdings, which are also being probed by SEBI, have collected Rs 165 crore and Rs 444.6 crore, respectively, through private placement of preference shares. The list of allottees runs into several hundred pages, raising suspicion that they are actually similar investment schemes passed off as share allotment to mislead the regulator.

All this led the ROC to note in its report that “it indicates the possibility of a large, well-planned, collusive, financial impropriety, financial irregularities, taping of retail capital market in the garb of various schemes....” Realising the seriousness of the issue, the probe was transferred to the Serious Fraud Investigation Office. It stands stalled now after the companies moved court and obtained a stay.

Interestingly, the SEBI order notes that the company misled investors to believe that it was part of the Alchemist group. The SEBI findings are related to the replies given by the company in which it says that it is not part of the group. However, investigations by Hardnews had revealed that the directors of AIR were officiating as directors in other Alchemist group companies, suggesting a strong link.

Many in West Bengal believe that only a CBI inquiry can unravel the truth about the dealings of the company. Till that happens, it will be interesting to see how the company will repay the depositors if it decides to abide by the SEBI order.